Environmental risk and stock price crash risk: Evidence from energy substitution policy adoption

Sen Li and Yi Zhang

International Review of Economics & Finance, 2025, vol. 99, issue C

Abstract: Exploring the staggered adoption of energy substitution policy, we investigate the relationship between reduced environmental risk and stock price crash risk. The result shows that stock price crash risk decreases following the policy's passage. Moreover, firms disclose more environmental information (specifically, hard information) following the policy and the policy's effect on crash risk is stronger for firms with higher information asymmetry. These findings are consistent with signaling theory, i.e., reduced environmental risk increases environmental information disclosure, leading to a lower stock price crash risk. Overall, this paper suggests that reduced environmental risk plays a crucial role in decreasing crash risk, providing empirical support for adopting clean energy.

Keywords: Energy substitution policy; Crash risk; Environmental risk; Environmental information disclosure (search for similar items in EconPapers)
JEL-codes: G12 Q42 Q48 Q53 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:99:y:2025:i:c:s1059056025001406

DOI: 10.1016/j.iref.2025.103977

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